6 Common Home Buyer Contingencies in Home Purchase Contracts
Use these home buyer contingencies to protect your interests and to negotiate the final terms of your purchase contract.
Real estate purchase contract buyer contingencies offer protection for home buyers and provide a way for a buyer to back out of a purchase agreement if certain circumstances or conditions are not met during a specified time period. When making an offer on a house, buyers will often have their North Carolina real estate agent insert six common home buyer contingencies. The seller and the buyer will often use those contingencies to negotiate the final terms of the home purchase contract.
Home Inspection Contingency in Purchase Offers
The home inspection contingency is the most common addition to any contract and gives the buyers a legal way to get out of the purchase contract if they are unhappy with the home inspector’s findings in the property inspection report. Buyers and and their real estate agents also have the option to ask the seller to correct the defects found during the property inspection, or they can ask for money to make the repairs.
Purchase Agreement Financing Contingency
Another of the 6 common home buyer contingencies is the financing contingency. This clause states the sale of the home is conditional upon the buyer securing a mortgage for the amount and at the terms specified in the offer. Buyers may think that this contingency isn’t needed if they have a mortgage pre-approval. However, that is not the case because an underwriter could find an issue with a loan application after the offer to purchase is accepted, leaving the buyer without financing to buy the home.
Home Appraisal Contingencies and Home Buyers
As mentioned in another Buyer’s Guide article, when a buyer hopes to borrow money from a mortgage lender to purchase a home in North Carolina, the home appraisal will determine whether or not the lender is willing to loan those funds. If the appraisal comes back with a home value less than the purchase price agreed to between buyer and seller, then this home buyer contingency will come into play. The appraisal contingency clause allows buyers to renegotiate the purchase price so that it matches the appraisal, or to cancel the offer and get their earnest money deposit back.
Home Purchase Contract Clear Title Contingency
Before buying a new home in North Carolina and other states, a title search is performed to make sure the buyer is receiving the title to the property free and clear. Who performs this title search, whether is a real estate attorney, escrow company or title insurance company, depends on the real estate laws of the state where the home is purchased. If a title search reveals unpaid taxes, a contractor’s lien, or any other type of claim against the property, the clear title contingency allows the buyer to walk away from the sale.
Sale of Current Home Contingencies
One of the 6 common home buying contingencies included in purchase contracts, which also happens to be unpopular with most sellers, is the sale of current home contingency. This purchase agreement clause protects buyers who must also sell their homes in order for the purchase of the new home to close. If it is a seller’s market and sellers are receiving multiple offers, then buyers with sale of current home contingencies in their offers may be at a disadvantage compared to those who don’t need this contingency.
Homeowners Insurance Contingencies in Real Estate Contracts
Lenders require buyers to have homeowner’s insurance in place prior to closing. Buyers should always be ready for the unexpected. For example, a hurricane may be approaching the North Carolina coast and insurance companies will stop issuing new policies until the threat has passed. If you are a buyer who hasn’t secured homeowners insurance and your loan is set to close during this time period, then you will need an insurance contingency to protect your interests.
While there are a variety of other real estate contingencies, the home buyer contingencies listed above are the six most common. An experienced buyer’s agent will be able to explain exactly which contingencies you will need to include in the purchase agreement to protect your interests. Remember, these contingencies, just like everything else in your offer, are subject to negotiation.
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